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Tag Archives | multilateralism

Don’t Hold Your Breath for the G-20

The G-20 Summit this weekend will see world leaders descend upon Hangzhou. How much will be accomplished considering the G-20 has been meandering since 2010?

By Hamsini Hariharan (@HamsiniH)

Over the last few months, Chinese media has depicted the G-20 Hangzhou Summit as a major upcoming milestone in global governance. Media Reports claim that the Summit’s agenda includes issues ranging from global taxation, innovation, growth, investment, climate change, trade barriers to even anti-corruption. How much will the G-20 be able to deliver on?

The Answer: very little.

It will do us well to question what the G-20 has actually achieved in the last six years. It was the primary coordinating agency after the 2008 Financial Crisis and came up with the standstill policy. At the 2010 Seoul Summit, there was a 6% quota rebalancing to emerging countries in the composition of the executive board of the IMF. The 2011 and 2012 Summits were overshadowed by the Eurozone Crisis. At the Cannes Summit, it was suggested that the IMF would provide additional financing to Europe as a whole rather than a single country. Japan led the pack with 60 billion dollars while the BRICS countries followed suit but the US remained aloof from the efforts. In 2013, the G-20 for the first time, addressed political contentions, particularly the Syrian civil war and the use of chemical weapons. In 2014, the Brisbane Summit saw leaders pledge to lift GDP by 2% by 2018. However, there is little evidence to prove that most countries are departing from their national policies to meet their commitments. The 2015 Agenda simply reiterated the need for meeting past commitments.

Thus, broadening of its agenda beyond international financial reform has also meant that the G-20 has had little impact on anything. The counter argument is that the G20 is a deliberative body rather than a decision making one. However, the purpose of deliberations is to drive decisionmaking at some level. The G-20 always possessed a feature of complementarity: it was to work alongside other major international institutions. However, reform of international institutions has proven to be a long arduous task and the G-20’s assumption of other tasks (comparable to the agenda of multiple other international institutions) will bear little fruit.

The main problem with the G-20 is that it is unable to deal with the power politics amongst its members. Given the unanimity requirement in the organisation, an issue is pushed off the agenda if there is a considerable opposition from several G-20 members forming an issue specific coalition. Agenda Setting dynamics within the G-20 generally pit developing and developed countries against each other. On the other hand, China which is the global growth engine and the US, still the global superpower, both seek to dominate the G-20 agenda. This is addition to individual countries attempting to carve out special deals for themselves. This cacophony of voices is one of the reasons that the G-20 has failed to deliver.

The G-20 is important for corridor diplomacy however, G-20’s importance boiling down to corridor diplomacy cannot be regarded as a success in any sense of the term. The main problem with the G-20 was that it was a minilateral envisioned to have taken the most important powers into consideration for effective deliberation. However, this minilateral is not small enough to align nations’ strategies and is beset by concerns of national interest.  The 2016 G-20 agenda is too wide a net for any effective outcomes. The only way forward is for the G-20 to prioritise its most important issues and stick to its original mandate: answering systemic economic challenges.

Hamsini Hariharan is a Research Scholar with the Takshashila Institution and tweets at @HamsiniH

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The G-20 Report Card

 The G-20 proved successful as a exigent mechanism post the 2008 Financial Crisis but hasn’t been able to provide solutions to global issues. The 2016 Summit in September will show if the grouping will become yet another defunct multilateral forum or if it can revitalise decisionmaking in the international system.

By Hamsini Hariharan (@HamsiniH)

In the aftermath of the 2008 Financial Crisis, the G-20 was thought to be the most effective institutional response to the crisis. Since then, the multilateral forum has been struggling to stay relevant to the changing geopolitics. Delivering more structural, longer-term solutions to create a more balanced global economy requires more far-reaching actions at domestic level, often needing the approval of national parliaments, which effectively makes advancing the G-20 agenda more difficult.[1] Since 2008, economic changes have been rapid and unpredictable. The Chinese reminbi was admitted into the SDR basket of currencies in 2015 but the Chinese economy in the same year went through a number of shocks and had to devalue its currency. Thus, China which hosting the 2016 Summit, faces a completely different context from the earlier years because of its own economic problems. The Summit, to be held in September 2016 will show if the grouping will become yet another defunct multilateral forum or if it can revitalise decisionmaking in the international system.

The G-20 is an interesting group for analysis on three different levels: On one hand, it shows the wrangling of the US which has been declining in stature in the international system, unable to cope with the pressures of the system unilaterally. On the other hand, it also sees the diplomatic maneuvering of China on an ascent, keen to reform the international system in its favour. The third level sees middle power countries around the world that are pushing for their own national interests as well as the agenda of developing countries.

The Group of Twenty was initiated in 1999 as a response to the Asian Financial Crisis on the suggestion of the G7: “the commitment to work together to establish an informal mechanism for dialogue among systemically important countries, within the framework of the Bretton Woods institutional system”.  The 2008 financial crisis exposed the fault lines in the global economic system particularly excessive bank credit, build up of private consumption based on uncollaterised loans and an inexorable rise in public debt. The group emerged partly as a result of political pressure on world leaders to ‘do something’ about the global financial crisis.  But it also was a response to the absence of international institutions where international coordination could take place quickly along a broad range of policy instruments.

The G 20 in the short term has achieved a status of one of the most important exigency contingents that allows for consensus building amongst powers of differing capabilities.  In the medium term, the G-20 could reflect and (possibly even help manage) a major reorientation in the relative standing of the world’s major powers.

The G-20 was envisioned as a forum to deal with financial crises beyond the capacity of advanced Western states. However, it has been transformed into an arena for world politics to be played out. Different forces of agenda setting have been played out within the G 20. For one, an America reeling from the impact of the 2008 Financial Crisis, initially set the agenda of the G-20 as the primary mechanism for crises management. However, the US has not been able to dictate processes or outcomes of the G-20.

China, as the rising power and expectant challenger to the power of the US, briefly aligned with the US. This led to fears of the two most powerful actors combining strategies to jointly dictate the agenda. However, China did not follow through with any sort of G 2 arrangement citing domestic concerns. G-20 is also the battlefield for developed countries grappling with the rise of emerging countries. While the G20 emerged as the major platform for global politics, the expansion of its agenda and its relevance amidst dynamic geopolitical and economic contexts in the future will determine its prospects.

The G-20 has other instrumental benefits, namely the formation of a new and updated concentration of power and has cross regional reach.  The growing strength of the G-20 as a forum however does not mean that G-20 decisions are effective. G-20 pessimists often cite lack of progress on curtailing currency wars and macroeconomic imbalances and repeatedly express disappointment over the outcome of the G-20 summits. Global governance, even with just twenty members and consensus based decision making, is an arduous task.

The G-20 demonstrates that in a multipolar world, emerging powers have to share the burden of leadership with great powers. However, it has realised very little since 2009 despite much talk. China’s assumption of presidency could provide the group with the push it needs to effect any major change. However, the agenda for discussions remains unclear thus making durable solutions to the problems of global governance implausible.

[1]  Marcin Szczepański and Etienne Bassot, “The Group of Twenty (G20): Setting the Global Agenda”,  European Parliamentary Research Service (Brussels: January 2015) p.8

Hamsini Hariharan is a Research Scholar with the Takshashila Institution and tweets at @HamsiniH

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Looking beyond the debate of bilateralism versus multilateralism

by Varsha Ramachandran

It is important to not to look at bilateral and multilateral engagements as being mutually exclusive of one another. In fact, bilateralism is the first step towards broader economic integration.

For a country to enhance its national power in the era of globalisation, it is important that it has strategic, yet unbiased economic agreements with countries across the globe. Taking this idea of economic integration further is the concept of one global economy which involves unification of economic policies, monetary policies, abolishing tariffs and taxes between various countries, and providing promising prospects of peaceful livelihood.

To engage internationally, a country can enter into several kinds of agreements. Such agreements can be classified into two categories based on the number of countries involved. Bilateral agreements are the ones that exist between only two countries, while multilateral agreements exist between several countries. Both these agreements can further be classified as Free Trade Agreements (FTAs), which does not involve any kind of tariff or non-tariff barriers to trade, or Preferential Trade Agreements (PTAs) which involves partial elimination of tariff or non-tariff barriers.

The debate on advantages and disadvantages of bilateral and multilateral trade agreements has existed for many decades in the field of international trade. Numerous studies have been conducted, using empirical data, to determine the success or failure of bilateralism and multilateralism. While the general consensus among economists is that multilateralism is more effective in the long run, this is sharply contrasted by the failure of the WTO multilateral agreements in the past few years and the success of multiple bilateral agreements instead. Economists who believe in multilateralism however point out that although bilateralism and regionalism increases trade, it harms the welfare of the world trade system.

The first half of nineteenth century saw a more closed global economy where nations engaged in bilateral agreements. Studies have noted that bilateralism contributed majorly towards harming the world trade during the inter war period. Economists argued that the highly discriminatory agreements made war inevitable. Similar opposition towards bilateral trade occurred post the Great Depression where it was argued that discriminatory agreements created vicious cycles of rising prices which further deepened economic depression.

The “Bandwagon Effect”, a situation where the non-trading partners will try to enter an existing bilateral agreement, thus rendering the original agreement less meaningful, is considered to be the biggest shortcoming in bilateralism. Creation of bilateral agreements can immensely complicate the trading environment due to creation of multiple rules. Most of these agreements have their own specific rules of origin which only complicate the production process and thus business and trade. At the same time, this also complicates the functioning of customs union as they have to assess same product differently for different countries. In the words of Professor Bhagawati, this is known as the “Spaghetti Bowl” phenomenon.

There is enough evidence to prove the failure of bilateral arrangements made way for openness among economies around the globe thereby leading to the formation of International Monetary Fund, World Bank, GATT, etc. Multilateralism soon gained popularity among policymakers as they started to explore the benefits of multilateral trade by removing stringent discriminations.

Though bilateralism allows countries to venture into different territories of similar interests, facilitate trade diversification and provides for simplified processes, multilateralism is often preferred because the risks and responsibilities associated with it get distributed among the members. Multilateralism acts as a central point to systematically deal with global concerns such as environment. Multiple countries can achieve better results than single countries working independently. Transaction costs reduce when nations pool in their resources. Multilateralism leads towards the realization of “one world, one law” with minimal complications and complete cooperation among all nations. It ensures that all nations participate in the management of global affairs.

Is multilateralism then the best option? Unfortunately, no!

The economic and geopolitical multilateral cooperation of eight countries of South Asia, SAARC, is a perfect example of the failure of a multilateral setup. Two of the largest economies of the SAARC, India and Pakistan have had inherent and long standing political tensions. The Indo-Pakistan dispute over Kashmir has proved to be one of the biggest impediments in the progress of SAARC. This shows that failure of a strong bilateral relationship between two countries will only cause a multilateral agreement including the same two countries to fail.

Economists have also pointed out some rather interesting shortcomings of multilateral arrangements. For instance, the United States was accused of having become increasingly dominant and inclined towards acting unilaterally, thus, making a number of developing nations question the very relevance of multilateralism. It is much more complicated and challenging as it involves many nations coming to a consensus which may become a tedious task. It may even happen that certain issues remain unresolved due to lack of cooperation among few countries.

Despite bilateralism and multilateralism, both, having strong drawbacks, bilateralism is believed to be here to stay. The fact is that bilateralism has always been around makes it very unreasonable to believe that it will cease to exist. The need of the hour is to identify how best bilateral trade can be used in the ultimate goal of reaching complete free trade. Practical ways of how integrate the two can be identified. For instance, a stronger multilateral system that has a bigger control over bilateral trade agreements, which are used to supplement the multilateral trading system by addressing issues that are more specific to countries and regions.

Multilateralism is necessary to reach a world of free trade. The first step towards multilateralism is, of course, bilateralism. Better regulation and a robust policy framework will educate nations engaged in bilateral agreements to expand their horizons and become part of multilateral trading blocs.

Varsha is an intern at the Takshashila Institution.

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